D.C. summit aims to fight recession

WASHINGTON – Nations are close to adopting a series of measures aimed at combating a global recession and laying the groundwork for a broad reconstruction of the international financial system, as world leaders arrive in Washington for a major economic summit this weekend.

Among the most notable measures would be the creation of a new body to supervise the regulation of global financial institutions. The “college of supervisors” would bring together international regulators to coordinate oversight of the world’s 30 largest financial institutions, according to officials familiar with the plans. The new body would be designed to add an extra level of scrutiny to the way banks are monitored and to catch excessive risk-taking of the sort that contributed to the current economic crisis.

The United States, European countries, Japan and major developing nations also are close to a deal to create a new “early warning system” to detect weaknesses in the global financial system before they reach epic proportions, according to diplomatic sources, who spoke on the condition of anonymity because plans were still being worked out.

Meanwhile, with international calls for greater transparency growing, U.S. officials say the Federal Reserve will soon announce the creation of a clearinghouse system to help standardize and limit risk on some of the opaque and exotic financial derivatives that helped bring down Wall Street’s investment banks. Even five of the world’s wealthiest hedge-fund managers said Thursday that they would support oversight of their industry.

Disagreements remain over the scope and speed of what needs to be done amid the worst financial crisis in decades.

Thursday, Germany became latest country to fall into recession since the onset of the crisis. The World Bank and the Organization for Economic Cooperation and Development now predict that the developed world overall will contract next year; even in red-hot developing countries such as China and India, growth is projected to slow.

Several of the world leaders arriving in Washington today have blamed the U.S. for causing the crisis by failing to adequately regulate markets and allowing freewheeling lending.

President Bush on Thursday defended American-style capitalism and warned against overregulation. Yet after eight years of deregulation and the expansion of market freedoms, he also called for reforms and greater cooperation among the world’s financial authorities.

To jump-start the global economy, leaders are pushing a series of shorter-term actions. On the heels of similar announcements in Japan, China and Germany, British Prime Minister Gordon Brown is set to unveil a major stimulus package as early as next week. Before heading to Washington, he argued Thursday that nations should also coordinate monetary policy.

After approving billions of dollars in tax rebates this year, Bush has so far resisted a new surge in federal spending to stimulate the U.S. economy. He is expected to be pressed to reconsider this weekend, with some arguing the situation is now so acute that the world cannot wait for an Obama administration to usher in a plan.

While short-term issues such as stimulus proposals are being discussed, the summit appears largely to be focused on broad ideas to change the world’s financial architecture.

World leaders are expected to set up working groups to wrangle over the details and to plan a follow-up summit for late March, after Obama takes office.